Saving Just Ain’t What It Used To Be

What with the rates of interest-bearing accounts dropping to their lowest levels in more than half a century, it’s nearly as productive to shove your money under a mattress as it is to deposit it at a bank.

The average returns on interest-bearing deposit accounts slipped to 0.99 percent in July, according to Market Rates Insight, which tracks bank rates. It is the first time its measure has dipped below 1 percent since the 1950s, when its data begins.

We’re not talking strictly about standard bank savings accounts—which often do, in fact, pay 0% or something like 0.10%—but CDs as well, which once provided a safe and reasonably good return on your money but now pay off sufficiently less. To copy the Times math: With $500K in a 12-month CD today, the best someone can expect is an annual return of $7,500 (with a rate of 1.5%). Three years ago, putting $500K in a 12-month CD would have yielded $26,250.

That’s a huge difference. And the situation created by today’s pathetic rates is one in which people with cash can either tread water via conservative investments or take the uncomfortable, nerve-wracking leap of riskier investments in, say, the stock market.

It’s funny (or frustrating, or sad, I’m not sure): A few years ago, it seemed foolish to invest conservatively because there was easy money to be made (supposedly) in real estate and the stock market. Today, it seems foolish to invest conservatively because you’re guaranteed to earn next to nothing, and investors tend to like their money to work for them.

But the trend probably won’t last. At some point, people will want to get a better return on their money (you can’t blame ‘em), and they’ll man up to take some risk. That’s what the powers that be want to happen, and it’ll probably happen.

One major lesson from the economic crisis was that people finally grasped that were being too cavalier and nonchalant with their money. Endless borrowing and taking on too much debt proved to be disastrous. Yet the system we have today not only encourages more borrowing (with historically low rates), it discourages saving (with pathetic savings rates), and in many ways punishes people who have responsibly paid off their debts and are just trying to build a nest egg.

To recap, the economic collapse taught people that it is smart to save. The problem is that after the economic collapse, it is much harder to save.